Procedure for sale
Once possession is taken, the secured creditor may sell the asset by public auction, by inviting tenders, or by private treaty, in accordance with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. The sale must be preceded by a valuation and a reserve price fixed by the authorised officer.
Thirty days notice
The borrower must be given a minimum of 30 days notice of the sale. The notice must describe the property, the reserve price, the time and place of the auction and the outstanding dues. A notice that is short, vague or not served on the borrower and guarantors is a strong ground for setting the sale aside.
Publication
The notice of sale must be published in two leading newspapers, one of them in the vernacular language, circulating in the locality. The bank must also affix the notice on the property.
Price and payment
The successful bidder must deposit 25 percent of the price immediately and the balance within 15 days of confirmation, or within a longer period agreed in writing. Failure to pay leads to forfeiture of the amount deposited. A sale at an unreasonably low price, or without a fair valuation, may be challenged as arbitrary.
Right of redemption
Section 13(8), as amended in 2016, allows the borrower to tender the entire dues together with costs and expenses at any time before the date of publication of the notice for public auction, tender or private treaty. In Mathew Varghese v. M. Amritha Kumar (2014), the Supreme Court underlined that the sale procedure must be strictly followed. After the notice is published, the statutory right of redemption is lost, though a settlement with the bank remains possible.
Challenging an auction
The remedy lies under Section 17 before the DRT. Grounds include a defective notice, undervaluation, collusion among bidders and failure to follow Rules 8 and 9. Bidders should also conduct a title search and read the auction terms carefully, since properties are usually sold on an as is where is basis.
Frequently Asked Questions
Q. Can I still pay and stop the auction?
A. Before the auction notice is published, you can redeem by paying the full dues with costs. After publication, you would need the bank's consent or a Tribunal order.
Q. Is a confirmed sale reversible?
A. Only in limited circumstances, such as fraud or a serious breach of the Rules, established before the Tribunal.
Disclaimer: This article is for general information only and is not legal advice. The law may change, and the facts of each matter differ.